Category Archives: VAT Planning

Transfer of a VAT registration number – form update

By   19 May 2025
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A business can request transfer of a VAT registration number if it is taking over a company and wishes to use the previous owner’s VAT registration number, or the status of a business is changing, eg; a sole proprietor business incorporates or changes to a partnership. To do this form VAT68 is used.

VAT68

To transfer a VAT registration number because of a change in company ownership, the buying entity must complete both an application for VAT registration and form VAT68. The application may be independent from any existing registration, or it can be an application to join an existing VAT group or form a new one.

A form VAT68 can be submitted via email to HMRC at btc.changeoflegalentity@gov.uk with the VAT registration service (VRS) number included in the email subject line, or sent to the postal address shown on the form.

The update includes the addition of information to confirm an application for VAT registration should be completed.

Care must also be taken when buying or selling a business as the Transfer Of a Going Concern (TOGC) rules can be complex and as with all ‘one-off’ transactions, they are usually out of the ordinary and sometimes high value, giving rise to potential VAT issues. Please see: VAT triggerpoints.

Warning

Unless there is a good reason to transfer a VAT number, we usually advise that this is not done. This is to avoid inheriting the tax history of the previous owner. The buyer of the business can be held responsible for past errors, late payments, ongoing VAT issues etc. These may not be apparent, even after thorough due diligence.

VAT Planning: design and build

By   6 May 2025
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Planning

The construction of a new house, and the materials used by the contractor to build it, are zero-rated. However, architect and other building professional fees, eg; surveyors, supervisors, engineers, project or construction management and consultants, are always standard rated; even in respect of a new build.

This will represent an absolute VAT cost to:

  • individuals
  • entities which will rent the house(s) after completion
  • housing associations (in some circumstances)
  • certain entities which are not in business
  • any entity which will use the building(s) for other exempt purposes
  • entities which do not sell the house(s) – so onward zero-rating is not possible
  • any entity which cannot recover all of its input tax for various reasons

Aims

If it is not possible to structure matters so that these fees can be recovered (there are a number ways to do this, but not all will be available to all parties) then advisers need to consider ways to remove the VAT charge – this may also be preferable for cashflow purposes even if full input tax recovery is possible.

VAT Planning

Design and build – the steps

  • the housebuilder creates a separately VAT registered design and build company (newco)
  • newco purchases the professional services and construction services and incurs the VAT on these (the construction element is zero-rated)
  • these supplies are incorporated into a single onward supply of zero-rated design and build services to the housebuilder (a bundle) – the professional services are a cost component of the construction
  • zero rating applies to the supply to the housebuilder as the predominant supply of the bundle is the construction of new dwellings
  • newco recovers the input tax incurred on professional fees etc, as it relates to an onward taxable supply
  • newco is in a repayment position and HMRC refunds the VAT incurred on the costs – often after a pre-cred query

It is also possible to use an independent design and build company, or engage a contractor to carry out both the design and construction elements of the project with a similar result.

Considerations

It is important to implement the planning correctly. This means that appropriate contracts must be in place, the operation is carried out on sound business principles (actual supplies are made and it is not simply the moving of money).

Arrangements

In order to evidence the proper commerciality of the structure, it is important to bear in mind that:

  • appropriate contracts are in place
  • proper invoicing is required
  • the arrangements are at arm’s length
  • a profit for newco would emphasise the commercial aspect
  • all parties’ accounts reflect the transactions
  • newco combines all of its costs (including overheads/admin etc) and supplies them to the housebuilder as part of a single package of zero-rated design and build services
  • newco acts as principal and not agent (that the professional services are not disbursements)
  • the newco and the housebuilder are not in the same VAT group
  • care should be taken if loans are required (they may compromise arm’s length and genuine commercial contentions)

HMRC’s view

In HMRC’s Internal Guidance Manual VCONST02720 it states that:

“Zero-rating the construction of buildings: services excluded from zero rating: design and build

Architectural or design services supplied as part of a design and build contract can be treated as part of the zero-rated supply of construction services.

A typical design and build contract will require the contractor to complete the design for the works and complete the construction of the works.

In such circumstances HM Revenue & Customs (HMRC) sees the design element as a cost component of the construction and not as a separate supply of architectural services which would be liable to VAT at the standard rate”.

Consequently, this planning is recognised and accepted by HMRC, however, it is important that it is applied effectively so it is difficult for HMRC to challenge.

VAT: HMRC to close online forums

By   2 May 2025
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HMRC has announced that it will be closing its online forums and shifting to digital support with effect 30 June‌‌‌ 2025.

This decision has been taken as a result of increasing popularity of HMRC’s newer digital support (set out below) and to move towards a more modernised approach.

As an alternative to the previous forums, the following HMRC digital support channels can be used:

  • Webchat – an agent only channel which offers a faster alternative to telephony
  • @HMRCcustomers on X (formerly Twitter) – for general queries
  • Agent Talking Points webinars – for information on a range of subjects with opportunities for participants to submit questions
  • tax agents’ handbook – for information to help tax agents and advisers find guidance, use HMRC services and contact HMRC
  • service dashboard – for information on current service levels for post and online requests
  • Agent Updates – a monthly online digest of information specifically for the agent community

VAT: Tribunal costs

By   23 April 2025
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    Latest from the courts

    In the First Tier Tribunal (FTT) case of Eurolaser IT Ltd regarding Kittel and Mecsek assessments and penalties:

    • whether an agent knew or should have known of fraud in supply chain – yes
    • whether such knowledge/means of knowledge to be attributed to Appellant – yes
    • whether Mecsek requires HMRC to show reasonable steps not taken by Appellant – yes
    • whether reasonable steps taken – no
    • unsurprisingly, the appeal was refused

    one interesting aspect was the award of costs.

    Generally, in FTT cases the rule is that each party will usually bear its own costs.

    However, it is worth recapping how the award of costs works via The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. In this instant case, the Appellant had not ‘opted out’ of the costs protection regime set out in rule 10(c)(ii) of the Rules. Consequently, the FTT ordered that Eurolaser must pay HMRC’s costs – a sting in the tail. So, what are the rules? (Where relevant here)

    Orders for costs

    “10.—(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)—

    (a) under section 29(4) of the 2007 Act (wasted costs) [and costs incurred in applying for such costs];

    (b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings; 

    (c) if—

    (i) the proceedings have been allocated as a Complex case under rule 23 (allocation of cases to categories); and

    (ii) the taxpayer (or, where more than one party is a taxpayer, one of them) has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub-paragraph”

    So, in “Complex” cases, an Appellant must submit a request that the case is excluded from the potential liability of costs being awarded, and HMRC must request repayment of its costs incurred in defending the case.

    What are Complex cases?

    These are complicated cases which:

    • require lengthy or complex evidence
    • require a lengthy hearing
    • involve complex or important principles or issues
    • involve large amounts or tax or penalties

    such cases are allocated to a ‘track’ within the FTT system.

    Other cost awards

    It is also worth remembering that costs can be awarded if the appeal is brought unreasonably. This usually means that it is vexatious or frivolous, so proper advice should be sought when considering an appeal.

    VAT Success Stories

    By   22 April 2025
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    I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

    Investment company

    HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

    We were able to persuade HMRC that our client had a right to be VAT registered because it intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

    This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid to our client.

    Restaurant

    We identified and submitted a claim for a West End restaurant for nearly £300,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

    Developer

    Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

    Charity

    A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome.  We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way.  If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

    Shoot

    A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

    After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

    Chemist

    We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years.  We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due.  We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

    The message? Never accept a HMRC decision, and seek good advice!

    New published guidance: Amendments to VAT groups

    By   15 April 2025
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    HMRC has issued new guidance on 14 April 2025 in respect of amendments to VAT groups.
    This includes the use of forms VAT50, VAT51 and VAT56 to:
    • add a group member
    • remove a group member
    • change the representative member of a VAT group
    • request to disband a group

    Furthermore, the guidance on the use of form VAT53 to allow an accountant, or agent, to register, or make changes to, a VAT group on behalf of a business has been published. Unfortunately, this form needs to be downloaded, printed, completed by hand, and sent by post to HMRC.

    Details on VAT groups, including the pros and cons here.

    How to authorise an agent to act on a business’ behalf for VAT here.

    VAT: Types of legal entities

    By   10 April 2025
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    VAT Basics

    What types of entities can be a ‘taxable person’?

    The definition of a taxable person in the VAT Directive is any person or body “who, independently, carries out in any place any economic activity, whatever the purpose or results”. Economic activity in the UK broadly means any business activity. I consider this definition below. 

    So, what is a person or body?

     In practice, a taxable person or body is generally a business, sole trader or professional. Examples of types of legal entities are a:

    • Sole proprietor
    • Partnership
    • Limited Liability Partnership (LLP)
    • Limited company (limited by shares)
    • Private company (limited by guarantee)
    • Public Limited Company (PLC) – a company registered under the Companies Act (1980)
    • Community Interest Company (CIC)
    • Charitable Incorporated Organisation (CIO)
    • Private unlimited company
    • Club or Association
    • Unincorporated Association
    • Co-operative Society (Co-Op)
    • Community Benefit Society (BenCom)
    • Trust
    • Charity
    • Not For Profit (NPF) entity
    • Right To Manage company (RTM)
    • Financial Mutual
    • Societas Europaea (SE)
    • Co-operative or community benefit society
    • “Section 33” body, eg; Local Authorities, Fire and Rescue Authorities, Police, Lighthouses, the BBC etc – VAT Act 1995 s33. These bodies have different VAT rules, and they may not necessarily be a taxable person

    Each type of entity or structure is subject to separate rules; from; governance, direct tax, reporting, accounting, risks, costs, benefits, responsibilities to legal rights and obligations etc. However, from a VAT perspective, the VAT legislation applies equally to all taxable persons.

    Two or more corporate bodies may apply to register as a single taxable person (VAT group) if they can meet certain conditions.

    A corporate body can apply to register each division separately if it:

    • is organised in divisions
    • carries on its business in divisions
    • can meet certain conditions

    What are not taxable persons?

    Private individuals are not generally involved in business and will therefore not be classed as taxable persons.

    What is business?

    There is considerable case law on what constitutes ‘business’ for VAT purposes. I have written about this issue many times, as it is a fundamental issue in the tax.

    The following articles consider such case law:

    Wakefield College
    Longbridge
    Babylon Farm
    A Shoot
    Y4 Express
    Lajvér Meliorációs Nonprofit Kft. And Lajvér Csapadékvízrendezési Nonprofit Kft
    Healthwatch Hampshire CIC 
    Pertempts Limited
    Northumbria Healthcare

    Registration

    A guide to VAT registration here.

    VAT: EORI – What is it? Do I need one?

    By   10 April 2025
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    VAT Basics
    HMRC has published new  guidance on Economic Operator Registration and Identification (EORI) numbers. Although most of the guidance is not new, it is a reminder of what EORI numbers are and who needs them.
    What is an EORI?

    EORI is an acronym for Economic Operator Registration & Identification.

    An EORI number is assigned to importers and exporters by HMRC (EOs) and is used in the process of customs entry declarations and customs clearance for both import and export shipments moving to or from the UK.

    What is the EORI number for?

    An EORI number is stored both nationally and on a central EU EORI database. The information it provides is used by customs authorities to exchange information, and to share information with government departments and agencies. It is used for statistical and security purposes.

    A business may need to demonstrate to HMRC that it has carried out proper due diligence in certain cases.

    Who needs an EORI number?

    You will require an EORI number if you are planning to import or export goods. EOs can be sole proprietors, partnerships, UK incorporated companies, registered charities, and overseas companies. However, private individuals bringing their own possessions to or from the UK do not need an EORI number. An EO does not need to be VAT registered to have an EORI number.

    For VAT groups, each member who imports or exports goods needs an EORI number.

    Format of the EORI number

    VAT registered companies will see the EORI as an extension of their VAT number. Your VAT nine digit VAT number will be prefixed with “GB” and suffixed with “000”.

    How do I apply for an EORI Number?

    Non VAT registered companies can apply using this link – FORM C220

    VAT registered companies can apply using this link – FORM C220A

    Once completed, your form should be emailed to:  eori@hmrc.gsi.gov.uk

    How long will my EORI application take?

    The process is straightforward and EORI applications usually take up to three working days to process.

    Please contact us if you have any issues with importing or exporting.

    EORI checker

    Gov.uk has provided a new tool to check a business’ EORI number. (This used to be an EU resource now not available due to Brexit).

    Access

    Who has access to an EORI number?

    The general public can access limited data, When a business is notified of its EORI number, it will be asked whether it objects to this data being published on the site.

    VAT: Construction Services Reverse Charge – New HMRC Manual

    By   8 April 2025
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    The Construction Reverse Charge (RC) background details here.

    HMRC has recently published its VAT Reverse Charge for Building and Construction Services Manual.

    It includes:

    • how it works
    • which services are covered
    • the supplies of materials
    • the supplies of labour and/or staff
    • who needs to apply it
    • practical issues such as invoicing and adjustments to consideration
    • compliance issues

    The contents of the new manual are: